By  on August 17, 2007

The squeeze is on Wal-Mart this back-to-

school season.

After several failed experiments with fashion, the retailer needs its "back-to-basics" apparel strategy to deliver a passing grade.

"The shortfall in apparel is one of the major causes of Wal-Mart's underperformance," said Bernard Sosnick, retail analyst with Oppenheimer & Co. Inc. "Home and apparel, which account for about 15 percent of Wal-Mart sales, have been the laggards."

During presentations at analysts' conferences this spring, Wal-Mart's top executives predicted b-t-s would mark the beginning of a turnaround for the retailer's beleaguered apparel program. But with weak apparel sales reported last month and anticipated through the end of the quarter, it seems recovery is at least a season away.

And if July sales turn out to be representative of the b-t-s season as a whole, Wal-Mart may need to reevaluate whether it has veered too far from fashion. A disappointing b-t-s may leave the retailer scrambling at holiday, since stores often bet the season on updated versions of b-t-s bestsellers.

So far, the signs aren't encouraging. Wal-Mart already has begun heavy price promotions on b-t-s merchandise, and earlier this week the company lowered its outlook for the second half over concerns about consumer spending power.

"U.S. consumers continue to be under difficult pressure economically," H. Lee Scott, Wal-Mart Stores Inc.'s president and chief executive officer, said Tuesday in a conference call with analysts.

Right now, Wal-Mart's 4,091 U.S. stores are decked with a "High School Musical" b-t-s theme, promoting the sequel to the blockbuster Disney Channel movie. There are pictures of lead actress Ashley Tisdale, HSM-themed activewear and orange "Best in Class" rack signs.

Prices are lower than they were in winter and spring. Most items are under $10, and everything in the junior section at a Wal-Mart in Danvers, Mass., was under $16. Fashion is limited in scope, such as a $9.92 No Boundaries hoodie offered in just three prints. Table displays had Hanes T-shirts, two for $10, and Faded Glory basic V-necks.

In essence, Wal-Mart has delivered on its promise to return to value-priced basics. So where's the anticipated home run with shoppers?"Apparel hasn't done what a lot of folks expected it to do," said Charles O'Shea, analyst with Moody's Investors Service. "What the problem is, is whether it's a new marketing campaign or more effective merchandise that's needed is very hard to say. I think they're still struggling to answer that."

The $345 billion Bentonville, Ark., retailer has signaled it is seeking fresh expertise and direction.

In late July, two weeks after Wal-Mart began setting b-t-s merchandise on its floors, its top apparel executive, Claire Watts, resigned. Dottie Mattison, a former Gap Inc. executive who has served for the past year as chief merchant of walmart.com, has taken over Watts' responsibilities.

Wal-Mart also elected Allen Questrom, the executive who engineered turnarounds of J.C. Penney Co. Inc. and Barneys New York, to its board at its June shareholders meeting.

Apparel has been a sinkhole for Wal-Mart for the last 12 months, blamed for dragging down comp store sales and whittling away gross margins. The category has remained troubled despite merchandise overhaul that's seen a return to simpler, lower-cost garments, and despite renovations to thousands of apparel departments in U.S. stores.

It's a high-profile problem for Wal-Mart U.S. ceo Eduardo Castro-Wright, who is in the second year of a three-year turnaround effort to improve results at the flagship U.S. division. Castro-Wright is seen as a potential successor to Scott, if he can get the U.S. business humming again.

Castro-Wright "is considered a man of action," said Sosnick. "He's moved at warp speed in many respects — changing the entire field operation, eliminating clutter, [reducing] store payroll. These are major positive changes, but in running fast sometimes you trip. And that's what happened in apparel."

Under Castro-Wright's plan, apparel is one of five "power" categories (along with electronics, grocery, health and beauty and home) Wal-Mart has vowed to win. And Castro-Wright has made progress almost everywhere else, except for apparel and home decor.

But the retailer's recent problems in apparel are perhaps nothing new: the company has always struggled with the conundrum of how to define "fashion" to more than 100 million customers who shop its U.S. stores each week. Its recent mishaps date back to 2005, when it made a high-profile bid to coax the more affluent (but less loyal) segment of its customer base to move over from the grocery aisles and try apparel.The retailer staged a New York fashion show, brought in pricier and more fashionable styles and took out ads in Vogue to tout the new direction. In 2005, executives at the company's Manhattan trend office told WWD that Wal-Mart aimed to be on par with Gap and American Eagle Outfitters Inc. in terms of fashion trend. The effort misfired. Higher-priced lines such as Metro 7 did not perform up to expectations after being rolled out too aggressively, and a designer version of George from designer Mark Eisen, which featured smaller sizing, languished on racks and was eventually discontinued.

George Whalin, president of Retail Management Consultants in San Marcos, Calif., said the strategy to lure more affluent customers with fashion was "a mistake and a disaster. Wal-Mart needs to get back to serving the customer they built the business on."

If the retailer seeks incremental growth, it should look at tightening store operations, rather than trying to attract a new customer in apparel, he added.

In June, during a company sponsored media conference, Watts stuck to a script when describing Wal-Mart's focus on updated basics, rollbacks and two-for-one buys.

Still, the move back to basics hasn't ignited customers.

"The customer wants more than body covering. They want a modicum of fashion," said Bob Buchanan, analyst with A.G. Edwards. "They can't go back to where they were five years ago with basic fleece." What should Wal-Mart have on its floor this b-t-s? WWD asked Roseanne Morrison, fashion director at The Doneger Group trend service, to list important mass market trends, and then compared her list with the styles a Boston-area Target and Wal-Mart actually stocked. In almost every case, Target had notably greater depth in the trend and more intricate styles. The two rivals also showed the biggest price gap in recent seasons, with Target's prices 20 to 80 percent higher on similar items in WWD's sample. Trends of the Season


Morrison's pick: Novelty hoodies

Target: Mossimo wallpaper print, $17.99.

Wal-Mart: No Boundaries puffed sleeve or printed, $9.92; HMS cropped hoodie, $13.43.



Morrison's pick: Trapeze jacketsTarget: Mossimo, $17.99.

Wal-Mart: None



Morrison's pick: Charmeuse blouses

Target: Xhilaration print and color-blocked styles, $14.99; Libertine bow blouse, $34.99.

Wal-Mart: None



Morrison's pick: Novelty dresses

Target: Xhilaration knit jumper, $12.99; Libertine eyelet cotton dress, $26.99; Mossimo printed maxi dress, $19.99.

Wal-Mart: Faded Glory Empire T-shirt dress, $10.77.



Morrison's pick: Fashion tunics

Target: Xhilaration baby-doll tunic, $16.99.

Wal-Mart: No Boundaries printed tunic with belt, $9.92.



Morrison's pick: Wide-leg jeans

Target: None

Wal-Mart: None



Morrison's pick: Novelty active bottoms

Target: Mossimo cropped with stitching, $14.99.

Wal-Mart: No Boundaries screen-printed, $9.92.



Morrison's pick: Fine-gauge layering tops

Target: Mossimo pintucked, striped and cap-sleeve Henleys, $12.99.

Wal-Mart: No Boundaries printed Henley, $6.87.

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